Forex Market: AUD/USD hits a fresh three-year high amid a surge in commodity prices

AUD/USD traded in proximity to fresh three-year highs on Tuesday, underpinned by the recent surge in commodity prices.

Higher prices for a range of materials, including oil, copper, lumber and milk powder, have provided support to commodity currencies such as the Aussie and the kiwi dollars.

Yesterday the price of copper surged above $9,000 per tonne for the first time since 2011, while the price of nickel moved above $20,000 per tonne for the first time since 2014.

“Dividend announcements for Australian mining companies that tend to announce in US$ and offer payment in A$, and the prospect of even larger dividends later in the year adds to the A$ demand story,” Westpac analysts wrote in an investor note.

The US Dollar Index was little changed on Tuesday at 90.08, after earlier slipping as low as 89.94, or a level not seen since January 13th, as market players awaited Federal Reserve Chair Jerome Powell’s response to expectations of resurgent inflation, which had driven US government bond yields higher.

In a testimony before Congress at 15:00 GMT today Powell is expected to reassure markets that the US central bank will allow inflation to rise without rushing to raise interest rates.

The Fed Chair “will very likely reiterate that the Fed is a long way from meeting its goals and that it will likely take some time before ‘sufficient progress’ has been made to taper its bond purchase programme,” UniCredit analysts wrote in a client note.

As of 10:18 GMT on Tuesday AUD/USD was edging down 0.19% to trade at 0.7899, after earlier touching an intraday high of 0.7935, or its strongest level since February 19th 2018 (0.7935). The major pair has risen 3.42% so far in February, following a 0.81% drop in January.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 0.7 basis points (0.007%) as of 9:15 GMT on Tuesday, down from 0.8 basis points on February 22nd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7900
R1 – 0.7944
R2 – 0.7973
R3 – 0.8018
R4 – 0.8062

S1 – 0.7870
S2 – 0.7826
S3 – 0.7796
S4 – 0.7767